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Delays on Neutron
Shares of Rocket Lab (RKLB) experienced a significant decline, dropping 8.2% by mid-morning on Tuesday. This movement came after the small space rocket company reported Q1 2024 results, delaying their Neutron launch until 2025. While Rocket Lab managed to "beat" earnings forecasts—losing less money than expected with a loss of $0.09 per share compared to the anticipated $0.11—its sales fell short of expectations at $92.7M, against the forecasted $95M. Despite missing the sales target, the company still achieved a great YoY growth of 69%.
The earnings report from RKLB, in my view, was underwhelming and has indeed affected my confidence in the company, despite its YoY growth. True, RKLB reported a smaller-than-expected loss, and yes, its sales demonstrated strong growth, driven by an increase in rocket launches. The company is also progressing well with significant satellite construction contracts, including a 17-satellite project for MDA and Globalstar, and a larger 18-satellite contract for the U.S. Space Force valued at $515M.
However, the central issue revolves around the Neutron rocket program. It's crucial to understand that RKLB's profitability largely hinges on the success of Neutron. If the company cannot advance this program within a reasonable timeframe, it may need to continue diluting equity to raise capital. Additionally, the success of Neutron's initial launches remains uncertain. The recent fundraising by RKLB indeed brought in significant capital, but the financial implications of the Neutron program are extensive and not fully accounted for in their pro-forma expenses. One critical, yet costly, question remains: how many launches will it take for Neutron to be commercially ready? This question carries a hefty price tag, highlighting the scale of investment and risk involved in bringing Neutron to market. The uncertainty around the number of required launches and the associated costs is a major financial consideration that could impact the company's future profitability and overall financial health.
While some might downplay the delays in the Neutron program, it's essential to approach this with a practical mindset. I remain cautious and hold my shares for now, watching closely for the company's progress on Neutron. If they miss their projected timelines, I will consider selling my shares. This stance is based on the company's performance and ongoing unprofitability, which is evidently a concern for Wall Street, as reflected in the company's stock price.
Outlook
Looking ahead to Q2, RKLB anticipates revenue will climb to between $105M and $110M. This forecast suggests that, at the minimum, the company will maintain its 69% sales growth rate, and could possibly increase it to 77% if it hits the upper end of the guidance. However, despite these optimistic projections, the company is expected to remain unprofitable, with a gross profit margin of about 25% and a negative operating margin of 50%. Analyst consensus doesn't predict Rocket Lab turning a profit until at least 2026 now, although this seems generous with a reasonable perspective.